Correction in tax policies can help double its
present size in 3-5 years

By AMANULLAH BASHARDec 10 - 16 , 2001

The beverage industry in Pakistan, currently having
a size of little over 120 million cases per annum with an annual
growth of around 10-15 per cent, has the potential to double its size
in the next 3-5 years, if the government's taxation policies towards
this industry are corrected.

The thrust of the interview was to find out the
present and future of Beverage Industry of Pakistan as regards to
taxation policies, growth in this changing scenario of the region and
the role of foreign and local brands.

"Let me start by letting you know briefly the
ground realities of this industry in comparison to other neighbouring
countries at present, said Siraj Teli, which I believe if the
government taxation policies towards this industry are corrected this
industry can double its size in the next 3-5 years, which at the
moment is little over 120 million cases per annum with an annual
growth of around 10-15 per cent.

"Let me also tell you that this industry was
growing at the rate of 25 per cent every year but now this growth has
gone down instead, because of excessive taxation policy on this
industry, which is 36 per cent of the retail price. Continuing his
point of view Siraj Teli said, let me elaborate this very important
aspect of this industry, which is the core issue, not allowing this
industry to grow as per its potential.

The beverage industry at the moment has very low
per capita consumption of 20 serves whereas in other countries of our
region it varies from120-250 on the basis of single serve of 250 ml.

This is definitely due to the heavy taxation, as
the price of the product is very important and especially in our
country where clean drinking water is not available and our products
has to be affordable to a common man which it is not at moment due to
36 per cent of taxation, whereas in this region taxes vary from 8-15
per cent of the retail price.

Today when the economical conditions all around the
world are in recession and this product price is very much sensitive
and elastic to the retail price.

Beverage industry has in the past provided to the
government that it works with better growths if we follow the supply
side of economics by bringing down the rates of taxation being able to
reduce or maintain the retail price at such a level which in return
will make the volume of sales of this industry grow fast which
ultimately will make the revenue of the government to grow as well.

Unfortunately this experience which is on record,
has not helped the planners in Central Board of Revenue (CBR) and they
have kept on increasing tax rates and today we are paying 15 per cent
central excise duty as well as 18 per cent sales tax which in effect
calculated works out to be 36 per cent of retail price. Mind you this
industry is also suffering from double taxation, with 2 different
levies as mentioned above, which you will not find anywhere else in
the world, he regretted.

Beverage Industry has not been able to increase its
retail price over the last 4 years, said Siraj Teli, due to the risk
of losing growth, and kept on marketing/ strategic policies of
different packages etc. to compensate in its costs but now we have
reached to a situation where we cannot absorb all the cost inputs any
more as the growth has gone down and it will need to increase the
retail price and there are chances that this growth will further
decline and ultimately the revenue of the government will go down as
well, he sounded a note of warning.

Therefore, we would like the government and CBR to
abolish excise duty as we have sales tax on our products as well which
is double taxation, this in turn will allow us to readjust our retail
price and maintain at an affordable level which will make sure that
the industry grows at a faster and higher rate which ultimately will
increase the total revenue of the government which at the moment is
over Rs5.2 billion.

"It must be noted here that the beverage
industry is the 3rd largest revenue participant of CBR and this I am
talking about only of sales tax and excise duty" Siraj observed.

On another question Siraj Teli said that this
industry has tremendously changed in the last 10 years due to more
aggressive participation and marketing strategies of the two
multinational brands known all around the world i.e. Pepsi and Coke.
Currently, 95 per cent of the market share is held by these two brands
and the rest by some other foreign and local brands, therefore, your
point of view is correct as the local brands of this country are also
not being given any special incentives to grow. The focus of the
government and its economic policies is on export-oriented industries
only which I believe is correct but at the same time the government
and policy makers should also keep in mind that all those industries
which may not be export oriented but to generate economic activity
inside the country should also not be neglected, that is industries
like construction and consumer product industry such as
confectioneries, food and beverages.

"Due to the recession the government should
provide special incentives to the above mentioned local industries by
way of reduction in taxes to provide a chance for them to push forward
their growth by maintaining affordable prices to generate maximum
economic activity, especially the food items which can be kept within
the reach of common man".

Answering another question, Siraj Teli said, that
there are 34 beverage plants in the country and this is one industry,
which is very well organized. Job oriented in nature, the beverage
industry employees over 500,000 people directly and indirectly and
also supports many other up/down stream industries such as crown
corks, glass bottles, plastic shells, sugar, transport, advertising
and media, P.E.T bottles, concentrates etc. due to this industry a
huge number of outlets/shops are supported to generate wide-spread
economic activity in the country, Siraj Teli said.

On the point of what exactly this industry needs
from the government to make this industry grow and double its size in
the next 3-5 years is just one thing: Abolish central excise duty,
which will reduce the total impact of tax and bring down the ratio of
36 per cent of the retail price to around 20 per cent, and at the same
time will solve the matter of double taxation, and in return instead
of increasing the price, we will adjust our price structure to such a
level which will be affordable for the consumers and at the same time
use the savings for new marketing strategies and push this industry to
grow at least over 30 per cent per annum which in turn will compensate
and increase the government revenue.

KCCI affairs

Siraj Kassam Teli, pioneer leader of the
Businessmen Group (BMG) in the Karachi Chamber of Commerce &
Industry (KCCI) said that the purpose of the formation of BMG in 1998
was with an agenda to bring about changes in KCCI in such a manner to
make sure that the real representative people of the Business and the
Industrial Community participate and are provided opportunity on merit
only. This in return will help and create real participation of
majority of the members and the status of KCCI and its image will be
built to the extend it deserves being the largest Chamber of the
country and also to extend its participation in the government
exchequer which is to the tune of 70 per cent of the total revenue of
the country, Siraj said.

Siraj Kassam Teli, leader of the Business
Community, said that prior to 1998 KCCI had lost its voice due to
participation and control of a limited number of people who were
controlling the Chamber and use to provide services to their friends
and close ones through their Managing Committee Members who were
elected and promoted without any merit nor any other criteria of
publish service except being their friends, family members or even
their employees and that also through an election of turn out of
around 700-800 voters, as the General Body members had lost interest
in the Chamber due to their above deeds. This also was the reason that
since all these people were mostly concentrating on their personal
relations and work for their dear and near ones, the government
functionaries ever used to give them the due attention because of
their deeds and also due to this attitude of theirs. The government
functionaries use to take advantage and the real issues and problems
of the Business & Industrial Community of Karachi were never being
solved.

He said that due to their above mentioned way of
working the traders, industrialists & businessmen of Karachi lost
their interests and confidence in KCCI which ultimately resulted in a
very low turn out in annual elections, and since the formation of BMG
in 1998, we have brought in new spirit of participation through
injection of genuine representatives and mobilization of the General
Body members of KCCI.

Siraj Teli said that within a short span of three
years, we have contested 4 General Elections and by the Grace of
Almighty Allah we have won all of them with the results as 7 out of 10
in September 1998 with a turn out of 2979 votes and these two
elections were contested against the Businessmen Panel of Tariq Saeed.
The 3rd elections the BMG contested against some independents and the
result was 10 out of 10 in September 2000 with a turn out of 1900
votes. This year in September 2001 the elections were contested
against the break-away group of BMG led by S.M. Muneer who also joined
hands with Businessmen Panel of Tariq Saeed, we won 8 out of 8 i.e.
all the General Seats with a record breaking turn out of 3189 votes
and no elections were held on the Group Seat due to DTO's order and
there is a dispute on the Town Associations Seat due to court cases by
the three out of territorial jurisdiction Town Associations, which
were encroached upon KCCI by vested interests of the break-away group
and the point to be noted is that even after a heavy mandate of the
General Body against them, they are pursuing in courts to save those
bogus town associations which in effect will not make any difference
in the power corridors of the Chamber, but can only create minor
hurdles in the way of providing services to the members, he regretted.

Siraj Teli said "our job is to send good
people into the corridors of Chamber and make sure that they are
capable and understand the problems of the Business Community and at
the same time are able to present them to the concerned government
departments in such a manner to get them resolved.

"Our goal is to make the institution of KCCI,
strong, vibrant and with such a voice that Karachi's interests are
protected and all the economic/taxation policies of the government are
consulted with KCCI before formulation, as it is our due right being
the largest Chamber of the country with 70 per cent revenue
participation, and Insha-Allah we will achieve this target very
soon", he said with confidence.